Pizza had already been introduced to America by Italian immigrants in the late 19th century. However, its surge in popularity didn’t begin until the late 1940s and 1950s.

Many soldiers who served in or near Italy during World War II developed a taste for pizza. When they returned home after the war, demand for it followed.

This created an opportunity for the Carney brothers.

They recognized an untapped market for pizza lovers in Wichita, Kansas, and opened a pizza parlor in 1958, leading to Pizza Hut’s birth.

The Carney brothers didn’t run Pizza Hut like a typical mom-and-pop pizzeria. Instead, they wrote detailed manuals covering everything from how many pepperoni slices to use, to how to greet customers, to how to properly mop the floors.

Their goal was consistency: Ensuring every customer had the same experience at every location.

Within 20 years, these standards became the foundation for every Pizza Hut location worldwide.

That said, operational consistency wasn’t Pizza Hut’s true growth driver, even though it certainly helped. The real engine behind its growth was its business model.

The Most Profitable Part of the Pizza

The Carney brothers scaled Pizza Hut by allowing others to franchise their own locations.

Rather than using their own capital to expand rapidly, they let franchisees shoulder most of the work. This meant the brothers didn’t have to fund every new location themselves, from startup costs to day-to-day operating expenses.

This wasn’t a one-sided arrangement. In exchange for franchising rights, franchisees received a clear roadmap for success, thanks to the detailed operating manuals the Carney brothers had developed.

It didn’t take long for Pizza Hut’s success to catch the attention of a major player: PepsiCo.

In the 1970s, PepsiCo was the second-largest beverage company, trailing only Coca-Cola. In an effort to close that gap, PepsiCo launched major marketing campaigns and expanded into the fast food industry.

Pizza Hut was an ideal acquisition target. In 1977, PepsiCo purchased the chain from the Carney brothers for $300 million.

Frank Carney stayed on as president to help with the transition, then left after three years to pursue his own ventures. In 1994, he used his capital to become one of the largest global franchisees of Papa John’s, a Pizza Hut rival, eventually opening more than 130 locations.

It didn’t take long for Frank to build another successful venture, because franchising makes growth easy.

Pizza Hut is hardly alone in its success. Take hotel giant Marriott for example.

Between 2009 and 2018, the company more than doubled the number of hotels in its portfolio, growing from about 3,200 to 6,800.

Marriott didn’t build all those hotels itself. Instead, it licensed its brand name to franchisees, allowing it to double in size over a decade without committing much of its own capital.

Thanks to that rapid growth, Marriott’s stock significantly outperformed the S&P 500 over that stretch, returning roughly 450% compared to about 170% for the index.

As shown by these examples, successful franchise businesses establish clear rules and standards for franchisees, then let each location operate independently as long as it stays consistent with the brand. 

This structure allows franchise businesses to grow far faster than companies that rely solely on corporate-owned locations, since the company itself doesn’t need to handle the hiring, local contracting, and buildout required to open each new site. 

What This Means for Financial Advisors

Occasionally, a retailer or restaurant business will shift from a corporate-owned model to a franchise model. 

That shift often signals that a company is positioning itself for faster, more capital-efficient growth, and companies like Pizza Hut and Marriott show just how powerful that shift can be.

For financial advisors evaluating investment opportunities on behalf of clients, that kind of transformation is worth watching closely.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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